Having a direct influence on a restaurants' operating benefit, food cost is the important thing in restaurant's business. Moreover, it is essential for calculating the food cost of your particular restaurant monthly. And for this business you can not use industry averages as a correct standard.
However, the idea of food cost must be examined at some different levels that will help to take into account any and all variables. Basically, there are four aspects of food cost. It is very important for them to be individually calculated for each operation.
Aspect # 1: Maximum allowable food cost
The maximum allowable food cost figure determines the food cost percentage an operation needs in order to achieve its benefit goals. It is calculated from the actual operating budget of the business.
For calculating the maximum allowable food cost percentage select a representative accounting period and determine the amounts for: payroll related costs that are salaries, wages, taxes, and fringe profit; overhead costs that are advertising, utilities, maintenance, other supplies excluding food costs. You should also include a target figure for gains before tax.
Aspect # 2: Actual food cost
This food cost percentage appears on the monthly income statement. As this is the cost of the food consumed by your customers, it does not include employee meals or spoilage.
Even though the actual food cost indicates what the food cost is currently running. Nevertheless, it has little value unless the operator knows what the target percentage should be.
Aspect # 3: Potential food cost
This aspect indicates what the food cost should be in a perfectly run restaurant, given the sales mix. It is a theoretical or ideal percentage. Its task is to reflect the fact that the most popular menu items will have the greatest impact on the overall food cost percentage.
Aspect # 4: Standard food cost
Management needs for regulating the potential food cost include waste and spoilage. However, that occurs during normal preparation, as well as an allowance for complimentary or discounted meals to employees and guests. In this way, an acceptable variance will range from half to three percentage points of food sales.
Management studies determine the exact percentage. And the standard food cost percentage is calculated by adding this variance percentage to the potential food cost.
Incapacity is reflected with the difference between actual food cost and standard food cost. Nevertheless, it should have been controlled by management.
If you bring all four aspects of food cost together you’ll show the importance of each in examining food expenses.